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Inflation expectations formation and financial stability: evidence from Indonesia

Syurkani, I and Ahmed, A (2009) Inflation expectations formation and financial stability: evidence from Indonesia. The Empirical Economics Letters, 8 (9). ISSN 1681-8997

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This paper examines the role of expectations in explaining the dynamics of inflation, interest rates and other key financial variables in Indonesia using VAR and error correction analyses. It is found that deposit interest rates, exchange rates and oil prices have significant impact on the expectations formation. We also found that administered prices are important, but their role decreases with time, while exogenous shocks remain a major source of movements in the expectations. The latter has long lasting effects and still accounts for more than 10 per cent of the variability of inflation expectations after the period of one year. This evidence shows the importance of inflation expectations formation,particularly on domestic financial stability.

Item Type: Article
Uncontrolled Keywords: ResPubID18756, financial stability, inflation expectations,
Subjects: Faculty/School/Research Centre/Department > School of Economics and Finance
FOR Classification > 1499 Other Economics
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Depositing User: VUIR
Date Deposited: 14 Apr 2011 23:08
Last Modified: 05 Sep 2011 23:48
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